With the rapid economic downturn resulting from the COVID-19 pandemic, many individuals are becoming increasingly concerned about their personal finances and credit score range– and rightfully so. Before making any decisions about your finances that could affect your credit score, it’s important to get the right information so you can make an informed and thoughtful decision, not a rushed one. In this article, we’ll explore potential effects on your credit score resulting from COVID-19 and what you can do to mitigate the effects.
How COVID-19 May Affect Your Credit Score
Consumers are understandably concerned about the effects of COVID-19 on their credit score, report, and health. The economic downturn resulting from COVID-19 won’t directly impact your credit score. Although, the economic events could indirectly impact your credit health. If you have experienced one or more of the following, you are at more risk of credit score damage during this time of economic struggle:
- Loss of job
- Income reduction
- No emergency fund available
- Unable to pay bills on time and in full
If you feel vulnerable during the COVID-19 economic downturn, there are ways to mitigate the negative effects on your credit as follows:
Be Proactive In Monitoring Your Credit Report And Score
During this time of uncertainty and continuous change, you can be proactive by regularly monitoring your credit report and score. By keeping an eye on your credit, you’ll easily be able to identify what’s normal and what should be reported to the credit bureau.
How To Check Your Credit Score
Both Equifax and TransUnion provide a free credit report to their customers every 12 months. Obtaining your free copy is a great place to start. To continue assessing your credit report and score, use apps like Borrowell. These apps allow you to check your credit report and score at any time and give you a monthly update when a new report has been generated.
How To Monitor Your Credit Report
When you’re monitoring your credit report, you’re looking out for errors and signs of fraud. Errors could be items like incorrect personal information, falsely reported missed payments or incorrect outstanding loan balances. Fraud could be items such as credit accounts that were not opened by you or balances on credit accounts that you didn’t incur yourself.
As a rule of thumb, if something looks wrong on your credit report, verify the information using your personal documents, and then report it to the credit bureau.
Review All Your Accounts
If you experience financial struggles currently or down the road resulting from COVID-19, you’ll likely turn to your credit accounts for support first. Credit accounts include credit cards and lines of credit. Review these accounts by assessing how much credit you have outstanding.
As for other types of accounts, such as car loans, personal loans, student loans and mortgages, you should take some time to review these too. Determine how much you have outstanding in total and what your total monthly debt obligation is. By reviewing all your accounts, you’ll know where you stand in the event that you lose your income source or have other financial issues.
Keep Up With Payments
Credit history has the biggest impact on your credit score. For this reason, you should do your best to continue to make payments on time and in full, particularly if you’re concerned about your credit taking a hit due to COVID-19.
If making payments gets tough at any point in time, do your best to pay what you can and make minimum payments on credit cards. In general, a partial or minimum payment is better than no payment. The minimum payment will mitigate negative effects on your credit health but keep in mind that interest will still accumulate on unpaid debt.
Be In Communication With Your Creditors
If you anticipate that you’ll miss a payment, contact the lender before you actually miss the payment. Lenders will appreciate that you’re giving them notice and will be more likely to extend the due date, create a repayment plan and work with your circumstances.
In light of the COVID-19 pandemic, many lenders and service providers have announced that they will offer relief to consumers. There may be additional options offered by your creditors as a result, but you won’t know unless you contact them – communication won’t hurt!
Get It In Writing
As mentioned, many major banks in Canada have assembled together to provide offers that will help ease some of the financial burdens many Canadians are facing due to COVID-19. In particular, payment deferrals on mortgages and credit products are being offered. Problem is, according to an article by The Star, these deferrals may reduce your credit score because the bank’s “computer systems haven’t been adjusted to reflect the general availability of deferred-payment arrangements”. Meaning, the deferred payment you were promised by the bank, may be reported as a missed or late payment because the bank’s computer reporting system has yet to be properly adjusted.
As such, it is recommended you get the offer in writing that states your payments are deferred and not missed/late. This will ensure you have the proof needed to dispute any errors you may find on Equifax or Transunion. It is also recommended that you follow-up with your bank if you need any extra extension as they typically only give 1 or 2 deferrals at a time.
Frequently Asked Questions
Will missing a credit card payment affect my credit score?
I lost my job because of COVID-19 will my credit score be affected?
The Bottom Line
Everyone is going through the same struggle with COVID-19. The way that the pandemic is interrupting our personal finances and lives may differ, but ultimately we’re all in the same boat. If you’re experiencing financial troubles, do your best to remain calm, communicate and stay transparent. By doing these things, you’ll be stepping in the right direction to improve your situation.